The welfare cost of lawlessness: Evidence from Somali piracy
Tim Besley, Thiemo Fetzer, Hannes Felix Mueller 28 February 2013
Somali piracy has created a major externality due to disruption to shipping, especially in the Gulf of Aden. How costly is this anarchy? This column analyses micro-data on individual shipping contracts and finds that piracy increased transport costs by around 8%. The $120 million in net revenues that pirates generate are more than offset by the costs borne by the shipping industry, which lie between $0.9 billion and $3.3 billion.
Max Weber defined a functioning state as “a human community that (successfully) claims a monopoly of the legitimate use of physical force within a given territory”. This does not apply to Somalia.
In Somalia, the effective monopoly of power has not been with any form of state since 1991. It has been topping the list of the failed states index for the past five consecutive years (Foreign Policy 2012).
Development Institutions and economics International trade
failed states, piracy, Somalia